For richer, for poorer – the relationship between financial planning and divorce

When it comes to relationships, for some people a life-long, happy marriage is the dream but the unfortunate reality is that it doesn’t always end that way. Going through a divorce is potentially one of the most emotionally charged situations someone will experience, yet it is also a period where some of the most important and rational financial decisions of your life need to be made. That’s where we can help. To find out more, we spoke to Eliana Sydes, a Chartered Financial Planner and divorce specialist in our South West region.

The role of a solicitor in a divorce is well known so why is it important to work with a financial planner as well?

A solicitor’s role is normally limited to just the process of the divorce, as they work with you to get the current situation resolved. A financial planner, on the other hand, looks at the life-long implications of these decisions to understand how they will actually work in the real world after a divorce. When you’re in a very emotional state, it can be hard to see any sort of clarity surrounding your future but that’s where we can help.

I continue to work with clients in the years following their divorce to see if their life has turned out the way they expected or if something has changed, to make sure that their finances are still set up in a way to meet their needs.

Is it important to consider the tax implications of a divorce?

Definitely – the taxman does not treat divorce favourably. Following a divorce, people can find themselves paying tax in areas that they wouldn’t have before, so it’s really important to have a financial review to firstly identify if this applies to you and secondly to restructure your assets in the most tax-efficient way. For example, in the tax year following a separation, you are no longer eligible for interspousal transfers for Capital Gains Tax purposes. We can look at different ways of dividing assets to meet both of your needs and reduce your tax bill.

What are the key financial areas to consider?

It’s important to remember that during a divorce, a lot of time is spent looking at the past. People often try to cut things in half to preserve a former way of life and this rarely works. The reason why many people get divorced is because they want to change their life, not keep it exactly the same. Even when one half of the couple does not want the divorce, they too will have to accept that their life will change, no matter how much they would like to retain the past.

As a result, one of the key questions that comes up for many people is whether or not either spouse should keep the marital home. It’s often a very emotional question but the rational, long-term financial consequences should also be considered. Many clients that I meet think that keeping the marital home will cause the least amount of disruption to any children involved. The reality is that those children’s circumstances have changed tremendously and keeping the marital home is not going to change that. In many cases, it is often better to have a completely clean start in a new home which is affordable than it is to try to live in a combination of the past and a new future.

I actually had a phone call recently from a client who I worked with during her divorce. She thanked me for questioning if she should keep the family home, which was her original goal. She said that I was right to advise her to sell it and then buy something that she could realistically afford for her and her children, as she would be able to start her new life quicker in a home that she and the children developed together. After living in the new property for 18 months, they are very happy and have moved forward with their lives.

Are there any other areas that are overlooked?

Yes there are. Quite simply, financial planning itself is often neglected. There is a lot of focus on the division of assets. This is important but, at the same time, divorce also provides the opportunity to question what your financial assets actually are, where they are kept and whether they are still suitable – just because these are what you had as a married couple does not mean that they are still appropriate. In the same way as questioning whether or not it is advisable to keep the marital home, I also ask questions such as:

• Is your pension in the right place?
• Is it right to keep your buy-to-let property?
• Has your attitude to risk changed?

In order to help answer these questions our financial planners will often undertake a cashflow modelling exercise to help you forecast your future finances following the divorce. We collect information about your current finances and how these are likely to change with any possible financial settlement. We take into consideration your monthly income, monthly outgoings and how much money you have saved in pensions, ISAs and other accounts.

Using specialist computer software, your financial planner will then analyse this information and crunch the numbers to create a long-term projection of your finances. This will show your future requirements alongside any increase or decrease in your assets, helping to identify any potential surplus or shortfall. Where there is a risk of insufficient money, we can identify this early and look at how it can be addressed. We don’t have a magic wand but understanding what your position is early on could be the first step towards achieving a desirable outcome.

It can also save you emotional turmoil during the divorce. After all, there is no point fighting over assets that simply won’t provide what you wish for. Understanding the starting point as quickly as possible and the variables this could produce can help lead to a more amicable divorce. Having a good solicitor on your side means that your case will be presented clearly – having a good financial planner will help you understand what may be possible.

Going forward, we will continue to work with you in reviewing how your financial circumstances and general view of life has changed following your divorce to ensure your financial plan continues to meet your needs.

Why choose to work with Tilney?

When choosing a financial planner, it’s really important to know that you are more than just a number. We appreciate that going through a divorce is incredibly difficult for everyone involved so it’s vital to work with a company that has a large amount of experience in this area to make sure the whole process runs as smoothly and painlessly as possible. Our financial planners have helped a lot of people get through a divorce, so they have a huge amount of experience in this area. This gives our clients much-needed peace of mind in otherwise difficult circumstances.

As well as experience, you’ll also know that with Tilney you’ll be working with some of the most experienced and qualified professionals in the country. As an example, I’m a Chartered Financial Planner, a Fellow and, because I help a lot of clients with divorce and separation, I am an Affiliate member of Resolution. I’m also an LLA (Later Life Adviser) with the Society of Later Life Advisers and a STEP Affiliate. STEP is one of the most well-known, globally recognised associations for professionals, including solicitors, accountants and financial planners, who specialise in family inheritance and succession planning.

How to get in touch with a financial planner

If you have any questions or would like to find more about how we can help, please get in touch with one of our experts. You can book a no-obligation initial consultation with one of our experts by filling in this short form, calling us on 020 7189 2400 or emailing contact@tilney.co.uk. Our financial planners can speak to you over the phone or meet you at your home, workplace or nearest Tilney office.

We also have a guide to financial planning and divorce that gives you more information.